Luckin takes on Starbucks in China coffee battle

US coffee chain Starbucks is well-established in China, where it has been operating for 20 years and has grown to be the market leader, but it is now facing serious competition from a Chinese start-up that launched just 15 months ago.

Luckin Coffee, which is known as Ruixing in Chinese, has built up more than 2,000 outlets and has set itself a target of 4,500 by the end of this year.

Already valued at a minimum of $2bn, the company shows little sign of slowing down in its determination to take a major stake of China’s $3.2bn retail coffee market.

Now, in an interview with Bloomberg, Luckin’s chief strategy officer, Reinout Schakel, shed some light on the company’s ambitions and the reasons for its success so far.

“China is Starbucks’ best and most profitable market now, but it took them nine years of making huge losses. We will be faster than that,” said Schakel, who also serves as Luckin’s chief financial officer.

He said the company is well-funded and is looking to form more partnerships, like the one it has with e-commerce giant Tencent, as well as with foreign food and beverage chains in China.

He added that Luckin will concentrate on expanding its presence in tier 1 and 2 cities while waiting to see how Starbucks fares as it seeks to expand in rural China.

But despite the challenge that Luckin presents to Starbucks with its radically different operating model, Schakel seemed to suggest that the Chinese market has so much room to grow that it should be possible for it to sustain more than one major chain.

“Of course we are competitors, but ultimately we both want the market to grow,” he said. “If I was an investor in Starbucks, I would also invest in Luckin to hedge my bets.”

Luckin’s success has been attributed to its relentless focus on convenience and efficiency. Whereas Starbucks has emphasised customer service and the pleasant décor of its stores, Luckin aims to appeal to a mass market by offering extremely competitive pricing.

In addition to its steep discounting, the company’s small-sized outlets are also deliberately located in or near office buildings so that it can rush out speedy deliveries, including via an app. By contrast, Starbucks only launched a delivery service as recently as August last year.

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